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Monday, February 2, 2009

The Latest Installment in the New Deal Debate

The latest installment in the ongoing New Deal debate comes from Harold Cole and Lee Ohanian. Writing in today's WSJ they move beyond the unemployment numbers discussion and present data on hours worked, consumption per capita, and nonresidential investment:

The goal of the New Deal was to get Americans back to work. But the New Deal didn't restore employment. In fact, there was even less work on average during the New Deal than before FDR took office. Total hours worked per adult, including government employees, were 18% below their 1929 level between 1930-32, but were 23% lower on average during the New Deal (1933-39). Private hours worked were even lower after FDR took office, averaging 27% below their 1929 level, compared to 18% lower between in 1930-32.

Even comparing hours worked at the end of 1930s to those at the beginning of FDR's presidency doesn't paint a picture of recovery. Total hours worked per adult in 1939 remained about 21% below their 1929 level, compared to a decline of 27% in 1933. And it wasn't just work that remained scarce during the New Deal. Per capita consumption did not recover at all, remaining 25% below its trend level throughout the New Deal, and per-capita nonresidential investment averaged about 60% below trend. The Great Depression clearly continued long after FDR took office.

The rest of their article explains how the New Deal created the above numbers. There is nothing new in their story, but their numbers certainly are interesting. I am looking forward to reading what Eric Rauchway, Brad DeLong, Paul Krugman and others have to say in response to this piece. Please guys, don't dissapoint me.

Update: Eric Rauchway replies here. Among other things, he notes Ohanian and Lee's critique is narrowly focused on the NRA and ignores New Deal policies that did work (e.g. devaluing the dollar, not sterilizing gold inflows, and shoring up banks).

1 comment:

Without having read the Cole and Ohanian article, it does seem from the paragraphs quoted above that they are looking at a gain and calling it a loss. However, it is still an important point that most Keynesians seem to be avoiding at their peril. The hours of work per worker DID decrease and that decrease may well have been a decisive factor -- along with government spending -- in the recovery from the depression and in the post-war boom. Keynes himself highlighted the strategic importance of work time reduction in his 1943 Treasury Department memorandum on "The Long Term Problem of Unemployment". Dean Baker has recently written op-ed pieces in the Guardian and the New York Daily News calling for work-time reduction as part of a stimulus package. So far no response to Dean's proposal from Brad DeLong or Paul Krugman. Why such reticence?

I've posted a draft submission to the White House Task Force on Working Families on EconoSpeak (see http://econospeak.blogspot.com/2009/01/task-force.html) that outlines the rationale for work-time reduction, in the context of the current economic crisis and the environmental challenges of climate change and resource limits.